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ARCHIVED — Vol. 146, No. 21 — May 26, 2012

Regulations Amending the Letter Mail Regulations

Statutory authority

Canada Post Corporation Act

Sponsoring agency

Canada Post Corporation

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Executive summary

Issue: The Canada Post Corporation Act requires the Corporation to offer postal services to all Canadians and to conduct its operations on a financially self-sustaining basis. The recent economic downturn, declining letter mail volumes, pension obligations, the significant labour disruption in June 2011 along with the decision by the Supreme Court of Canada in November 2011 pertaining to pay equity are all factors that are straining the Corporation’s financial position. At the same time, the Corporation must deal with higher annual operating costs related to network expansion, general inflation and increased terminal dues (the fees payable to other postal administrations for mail sent outside Canada).

These proposed rate increases are designed to help ensure that Canada Post’s costs in maintaining postal service for Canadians continue to be borne by those using postal services, rather than through taxpayer-funded government support.

Description: The proposed amendments would establish the rates of postage for domestic letter mail items (other than the domestic basic letter rate), U.S. and international letter mail, and domestic registered mail, effective January 14, 2013.

Cost-benefit statement:

Costs: The proposed rate increases for domestic letter mail represent a weighted average increase in 2013 of 4.3%. The proposed increases for U.S. letter-post and international letter-post represent a weighted average of 4.3% and 2.9%, respectively, with a combined weighted average increase of 3.8%. The rate for domestic registered mail would increase by 3%.

Given current usage, the impact of these proposed rate increases on the average Canadian household would be less than 30¢ annually.

Benefits: The proposed rate changes would assure Canada Post of revenue to meet its mandate of financial self-sufficiency and its responsibilities of providing quality postal services to Canadians under the Canadian Postal Service Charter. The revenue is especially needed given that, following 16 consecutive years of profitability, Canada Post recorded a loss before tax of $253 million for 2011.

Business and consumer impacts: The proposed increases are reflective of Canada Post’s costs in conducting its operations. Canada’s domestic letter rates would continue to compare favourably with those of other industrialized countries, despite the country’s vast geography, low population density and harsh climate.

Domestic and international coordination and cooperation: This proposal is not expected to have any significant impact on trade or domestic or international coordination and cooperation.

Issue

The Canada Post Corporation Act requires Canada Post to provide postal service to all Canadians. Rates of postage must be fair, reasonable and, together with other revenues, sufficient to defray the costs the company incurs in its operations. The Canadian Postal Service Charter, announced by the Government in September 2009, further clarifies Canada Post’s responsibilities with respect to delivery, rates and service. As a corporation listed in Part Ⅱ of Schedule III to the Financial Administration Act, Canada Post is expected to be profitable and not be dependent on appropriations from its shareholder, the Government of Canada, for its operations. Nevertheless, despite being profitable for the previous 16 years Canada Post Corporation recorded a loss before taxes of $253 million for 2011 owing to a combination of factors. Chief among these are increasing competition, letter mail erosion, pension pressures, a labour disruption and the November 2011 ruling by the Supreme Court of Canada on pay equity.

The Corporation benefits from an exclusive privilege on the collection, transmission and delivery of letters within Canada, to help it meet its service obligations. In recent years, however, the economic value of this privilege has declined, as electronic means of communication grow in popularity and are more widely available. The outbound letter market was opened to competition through amendments to the Canada Post Corporation Act that came into force in July 2010. In addition, the Corporation is currently undergoing a $2.1 billion infrastructure renewal to bring its network up to modern standards and provide the platform for new products and services.

Overall, volumes of domestic letter mail have been in steady decline since 2006, largely due to the increasing popularity of electronic transactions and emails. The economic uncertainty associated with the recent recession and the June 2011 labour disruption also resulted in a permanent loss of some mail volumes. Domestic letter mail volumes declined by 4.5% in 2010 and by a further 3.6% in 2011.

Volume declines represent a significant business risk to Canada Post, as close to half of the Corporation’s unconsolidated revenues derive from domestic letter mail. The decreasing letter mail volumes in conjunction with network growth — the number of addresses that Canada Post must deliver to is expected to grow by approximately 175 000 per year — result in a decrease in mail density. Since 2006 the cumulative erosion of letter mail per point of delivery has been 20%. The Corporation’s operating costs increase as mail volumes per address decrease.

Canada Post faces annual operating cost increases related to general inflation driven in part by increases to fuel costs. Inflation was 2.9% in 2011 as measured by the Consumer Price Index (CPI). The CPI is expected to be just under 2% in 2012. Employee wages, benefits and pensions, along with the costs associated with complying with a decision by the Supreme Court of Canada in November 2011 in a longstanding pay-equity dispute with employees represented by the Public Service Alliance of Canada, are added cost pressures.

Terminal dues are a pricing mechanism between postal administrations designed to recover the costs of providing domestic delivery of mail sent from another country. In 2012, terminal dues to the United States are increasing by about 2.4% and by 4.4% to other countries; they will further increase by 3.5% to the United States and 3.8% to other countries in 2013. These costs represent 60 to 70% of Canada Post’s expenses related to U.S. and international outbound mail.

Objectives

The proposed amendments would raise a number of postal rates by a modest percentage in 2013. The increases would help Canada Post meet its statutory obligations to conduct its operations on a self-sustaining financial basis and meet its responsibilities under the Canadian Postal Service Charter to maintain an accessible, affordable and efficient postal service for all Canadians.

Description

The proposed amendments would establish the rates for the following, effective January 14, 2013:

domestic letter mail items other than the basic domestic letter rate;

letter-post items (letters, cards and postcards) destined for the United States and other international destinations; and

domestic registered mail.

A five-year pricing plan for the domestic basic letter rate (standard letters up to 30 g) was approved by the Government in October 2009 (SOR/2009-286). The basic stamp price will rise from 61¢ to 63¢ on January 14, 2013, and by an additional 2¢ in 2014.

The current and proposed rates for letter-post items to be delivered outside Canada are as follows:

International Letter-post

2012
Rate

Proposed
2013 Rate

Unites States

30 g or less

$1.05

$1.10

more than 30 g but not more than 50 g

$1.29

$1.34

100 g or less

$2.10

$2.20

more than 100 g but not more than 200 g

$3.70

$3.80

more than 200 g but not more than 500 g

$7.40

$7.60

International

30 g or less

$1.80

$1.85

more than 30 g but not more than 50 g

$2.58

$2.68

100 g or less

$4.20

$4.36

more than 100 g but not more than 200 g

$7.40

$7.60

more than 200 g but not more than 500 g

$14.80

$15.20

The proposed rate increases for domestic letter mail represent a weighted average increase of 4.3% in 2013. The proposed increases for U.S. letter-post and international letter-post represent a weighted average of 4.3% and 2.9%, respectively, with a combined weighted average increase of 3.8%. The weighted average increase represents the average percentage increase across the various rates under consideration, taking into account the volume of mail associated with each particular rate.

The rate charged for domestic registered mail would increase by 25¢, from $8.25 to $8.50, an increase of 3%.

Regulatory and non-regulatory options considered

Given that letter mail, international letter-post and domestic registered mail are regulated, any change to the rates must be done through a regulatory amendment.

Benefits and costs

The revenue from regulated letter mail will help ensure the viability of Canada’s postal service.

In addition to assuring Canada Post of revenue to meet its costs of operations, the rate increases contained in the proposed regulations would assist in financing the Corporation’s $2.1 billion multi-year infrastructure renewal program known as Postal Transformation (PT), through which outdated and obsolete mail processing equipment is being replaced in centres across the country. PT is designed to save mail processing costs through increased operating efficiencies, to provide a safer and greener work environment for employees and to provide the platform for new products and services to meet the needs of Canadian consumers and businesses.

The proposed increases would have a minimal impact on Canadian households: an estimated 15¢ per year for domestic letter mail, 10¢ for international letter-post items and 3¢ for domestic registered mail. The increase in mailing costs for a small- or medium-sized business is estimated at close to $5 per year for domestic letter mail, $1.42 for international letter-post items and 50¢ for domestic registered mail. Large Canadian businesses (those that mail millions of pieces annually) could expect their mailing costs to rise by close to $2,600 per year for letter mail, $350 for international letter-post and $158 for domestic registered mail.

Rationale

The new rates would directly contribute to Canada Post’s financial integrity and, consequently, its ability to make investments to maintain an accessible, affordable and efficient postal service. Canada Post is a pillar of the Canadian economy and plays an essential role in keeping Canadians connected and helping businesses thrive. Canada Post, along with its subsidiaries Purolator Inc., the SCI Group Inc. and Innovapost Inc., directly employs close to 69 000 people and supports thousands of additional jobs in the transportation and related industries across the country.

Even with the new rates, letter rates in Canada will continue to compare very favourably with those in other industrialized countries, despite the country’s vast geography, low population density, harsh climate and other factors that have a significant impact on the costs associated with providing postal service.

Consultation

The Canada Post Corporation Act requires a consultation period through publication of each regulatory proposal in the Canada Gazette. All representations must be sent to the Minister of Transport. The representations are taken into consideration in the preparation of the final regulatory proposal.

Canada Post is committed to ensuring that an open and transparent consultation process takes place for all regulatory price increases. Customers are consulted on an ongoing basis throughout the year and the input is taken into consideration when setting rates for the following year. Consultation continues during the regulatory process and during this time meetings are held with customers and industry stakeholders to gather feedback and input for proposed and future changes.

Implementation, enforcement and service standards

The regulations are enforced by Canada Post under the Canada Post Corporation Act. No increase in the cost of enforcement is expected as a result of the proposed changes.

PROPOSED REGULATORY TEXT

Notice is given, pursuant to subsection 20(1) of the Canada Post Corporation Act (see footnote a), that the Canada Post Corporation, pursuant to subsection 19(1) (see footnote b) of that Act, proposes to make the annexed Regulations Amending the Letter Mail Regulations.

Interested persons may make representations with respect to the proposed Regulations within 60 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to the Minister of Transport, House of Commons, Ottawa, Ontario K1A 0A6.

CANADA POST CORPORATION

REGULATIONS AMENDING THE LETTER MAIL REGULATIONS

AMENDMENTS

1. The portion of paragraph 1(1)(b) of the schedule to the Letter Mail Regulations (see footnote 1) in column II is replaced by the following:

Item

Column II

Rate

1. (1)(b)

$1.10

2. The portion of subitems 2(1) to (5) of the schedule to the Regulations in column II is replaced by the following:

Item

Column II

Rate

2. (1)

$1.34

(2)

$2.20

(3)

$3.05

(4)

$3.50

(5)

$3.75

3. The portion of subitems 3(1) and (2) of the schedule to the Regulations in column II is replaced by the following: